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Understanding Blockchain – Part 1

In the first part, instead of bombarding you with technical jargons, I will tell you a story. This story will form the basis of understanding the technical jargons which will get introduced in Part 2 of this series.

There once lived an old man who had 10 sons. They all lived together. The old man was a clever man. He made each son choose a different profession so that they all could help out each other. One farmed while the other one hunted, the third one made pottery while the fourth one became a milkman. Hence, all decisions were taken by him. The family lived in this manner for quite some time. However, all the produce was brought to the old man for distribution among the brothers. You can say the old man was a central authority.

The old man thought that since he has to die one day, he must think of a solution that the brothers can apply to distribute the various items they produced. He knew that the centralized authority which he has commanded over the years will not remain after he dies.

The old man thought that he will ask each son to make a PROMISE to one another. Why so? Because different items took a different time to produce. While the milkman was ready with milk every day for the family, the farmer took around 3 months to bring back his share of produce. He called all his sons for a meeting and gave them this solution. All the brothers agreed. The milkman made a promise to supply milk to all the brother’s families in exchange for pottery and rice. The farmer made a promise to supply the grains to everyone and so on.

The brothers were fine with this idea as they TRUSTED each other. This trust factor was important as it was basis this trust that they all agreed to exchange goods with each other and keep their promises. The old man thus transformed the decision making from a centralized system to a decentralized system.

Initially, the system worked, but over time, there were more and more promises being made. It became really hard to track all of these “promises”. Soon brothers were disputing over promises forgotten or never made. This brought the family’s survival to a question. So all the sons got together to find a solution to this problem.

They all decided to appoint someone to track these promises.
Let’s call her as the LedgerWoman.

She called in all the sons and got to work to write down the promises which they made to each other on a daily basis. Over time, the family size increased and the ledgerwoman had more and more work to do since the number of promises increased. One day, the ledgerwoman stopped all work and went on a protest that she must be paid a share of the trade as she worked so hard. Reluctantly, the families agreed. The families were now equivalent to a big village. Hence, in every transaction (promise) which was logged in the ledger, a cut was taken by the ledgerwoman.

Over time, this ledgerwoman became extremely wealthy and powerful as she controlled the book of promises. As time passed, she started taking bribes and increased her cut of shares. She also started fudging the book of promises.

The families were now back to square one. They kicked the Ledgerwoman out and decided to do something about it. Appointing another person for this job was not the solution, hence, a new innovative idea had to be thought through. Transactions had to be recorded, but the issue was asking one person to maintain this book of promises. So, the families got together to come to a conclusion that all would maintain the ledger details.

This forms the basis of the block chain, where every individual will own the records of transactions and in case of any change, all the ledgers with all the families will get updated. For making these changes, the families would have to meet at regular intervals for a Verification Check. This check would ensure that all ledgers are updated with the most recent promises. Everyone will come to a CONSENSUS that the ledgers match and in this manner, EVERYONE will have complete CONTROL and KNOWLEDGE of the transactions taking place.

A young man pointed out that what would happen if an entry in one of the ledgers did not match such as :

An old man suggested that we follow the 51% rule in this case. If 51% or a majority of the ledgers say that “Jason promised to give 20Kg of rice to Ethan hunt in exchange for 4 chicken” we accept that as the truth and nothing else. He also suggested marking a special symbol after a page of the ledger got completed. The symbol on the next page would be a derivative of this new symbol. In this manner, even if a person wanted to change a page in the ledger, he would not be able to do so as he would have to change the symbol too which was impossible.

In this manner, no one will have to trust each other and still the distributed ledger where the 51% rule applies will be the source of trust for everyone. TRUSTLESS system is what the old man called it.

This story will form the principle of understanding the basics of Blockchain which will be covered in Part 2.

I leave you with the following questions:

1. What when the families and village grows to thousands of members? Will this solution still work?

2. What if someone gets hold of all the ledgers and make changes in all of them?

3. What mechanism would be used if every village had their own separate way of ledger keeping?

Feel free to share your thoughts in the comment(s) section below…

This is Part 1 of the 5-part series on the blockchain. In this series, we will learn about what is exactly blockchain and the need for it. We will then focus on understanding the working of a blockchain followed by its applications in the real world. We will then move on to Blockchain 2.0 – Smart contracts. In the final part, we will focus on Blockchain 3.0 & 4.0.

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Rohit Aggarwal said…

NIce article,

In my viewes if some hacker can have the access to all the ledgers then he or she can change the details.

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The views and opinions expressed herein are my own. They do NOT intend to represent the views or opinions of my employer or any other organization. Any information represented as fact are believed by me to be true, but I make no legal claim as to their certainty.